Homeowners are sitting on a record level of about $35 trillion in home equity — more than double the equity levels recorded prior to the financial crisis and housing market collapse of the late 2000s. But as the share of first-time homebuyers gets smaller — and older — it’s not a given that homeowners will be able to tap that resource, according to reporting by The Wall Street Journal.
Part of this comes from the so-called “rate lock-in effect.” Nearly seven in 10 homeowners have an interest rate of 4.5% or less, according to data from Morgan Stanley that was cited in the report. But a major indicator of the ability for a homeowner to be able to feasibly tap their equity centers on age.
Older homeowners, who have been paying their mortgages for longer, are part of a select group that owns their homes outright. This mortgage-free cohort “represents almost 40% of American homeowners and includes anyone wealthy enough to not need home financing at all, as well as people who have lived in their property long enough to have paid down most of their mortgage or cleared it entirely,” the report explained.
The typical age of a home seller has recently reached a new high of 63, and many of this group bought their homes during another time of affordability challenges in the 1980s.
But they “are now able to fund a comfortable retirement using the wealth stored in their homes,” according to the report. “However, owners in some parts of the country might have a short window to cash out at the top of the market. Home prices are starting to fall in certain states, notably in areas of Texas and Florida.”
According to data from the National Reverse Mortgage Lenders Association (NRMLA) and data analytics firm RiskSpan, Americans ages 62 and older were sitting on a repository of roughly $14 trillion in home equity as of second-quarter 2024, or 40% of the $35 trillion accumulated by all U.S. homeowners.
There was an estimated 3.97% (or $624.6 billion) increase in senior home values during the second quarter, which was offset by a 0.89% (or $20.9 billion) increase in senior-held mortgage debt. Senior homeowners were beneficiaries of the acceleration in home prices seen during the COVID-19 pandemic.
As a frame of reference, in 2011, the collective level of senior-held equity sat at roughly $3 trillion. By Q3 2021, it topped $10 trillion for the first time. And in Q1 2022, it exceeded $11 trillion.
